Capital gains Tax- The short and long of it (with computation)
A quick guide to understand Capital gains tax
What is Capital gain tax?
Classification of Capital gain
Short term Capital gain
- If the taxpayer holds the asset for a period of 36 months from the date of acquisition before the sale, then profit arising from the sale will be treated as a long-term capital gain.
Long term Capital gain
- If the asset is sold within a period of 36 months from the date of acquisition, then it is called a short term capital Gain.
Tax Rates – Long-Term Capital Gains and Short-Term Capital Gains
| ASSETS | SHORT TERM | LONG TERM | ||
| Duration of Asset | Tax rate | Duration of Asset | Tax rate | |
| Securities | < 1 year | 15% | > 1 year | 20% with Indexation |
| Non-securities | < 3years | Income tax slab rate | > 3 years | 10% without indexation |
| Exempt | Not applicable | Not Applicable | > 1 year | Exempt |
How to Calculate Capital Gains?
Given: Income from the sale of land:
Purchase Value -1,00,000; Year – 2001-02; Indexation Factor – 100
Sale Value – 5,50,000; Year – 2017-18; Indexation Factor – 280
Solution: The sale of the land period is more than 3 years so it is a long term capital gain. The calculation will be done according to the Index factor.
Indexation Value = Purchase Value x Indexation Factor of Sale Year / Indexation Factor of Purchase Year
= 1,00,000 x 272 / 100
Index value = 2,72,000
Therefore, Profit = Sale Value – Index Value
= 5,50,000 – 2,72,000
Profit = 2,78,000
Applying 20% with indexation:
= 2,78000 x 20 / 100
Capital Gain = 55,600
And with that, we end this post on Capital Gains Tax. If you have any questions, drop them in the comment section below.
Index value = 2,72,000
Therefore, Profit = Sale Value – Index Value
= 5,50,000 – 2,72,000
Profit = 2,78,000
Applying 20% with indexation:
= 2,78000 x 20 / 100
Capital Gain = 55,600
And with that, we end this post on Capital Gains Tax. If you have any questions, drop them in the comment section below.
